Most interesting is the detail offered in the backgrounder on the negotiations, which only reinforces how astounding it is that not one whiff of CBS' pursuit of CNET got out in the press prior to the deal announcement on May 15.
CBS Corp. boss Leslie Moonves and CBS chief financial offer Fredric Reynolds made several treks during the past year to CNET's San Francisco HQ to meet with their counterparts, CNET CEO Neil Ashe and CFO Zander Lurie. Ashe and Lurie also spent a lot of quality time at Black Rock meeting with CBS brass. We also now know that May 14 was a marathon workday for Moonves. Not only was it the day of the Eye's upfront presentation at Carnegie Hall, but the final-final the paperwork on the CNET deal was hammered out that day and night and into the wee hours of May 15 prior to the PR execs for both companies pushing the "send" button on the press release that morning.
The big question now, of course, is whether another suitor will come forth with a higher offer for CNET during the next month or so during the tender offer period. Some have suggested that CBS overpaid in agreeing to a deal that gives CNET a 45% premium over where its stock price was before the deal was announced.
But the CBS response is pretty persuasive. CNET is no Internet pipe dream. It's a real company and web pioneer that survived the first dot-bomb meltdown. For 2008, CNET is forecasting nearly $93 million in earnings on revenues of $446 million. Those are numbers that even a $14 billion company like CBS can't sniff at.
As recounted in this SEC filing (the interesting stuff starts on page 15) Reynolds, intrepid CBS Interactive prexy Quincy Smith and two other CBS execs made the first fact-finding mission to CNET's offices in April 2007. Then Moonves and Ashe made a point of having dinner in July during investment banker titan Herbert Allen's annual moguls' retreat in Sun Valley, Idaho. (Allen & Co. wound up becoming an adviser to CNET on the deal.)
(Pictured above: Leslive Moonves on stage at Carnegie Hall during the Eye's May 14 upfront presentation. He headed back Black Rock later in the day to monitor the last lap of the CNET negotiations.)
The acquisition talk between the two companies got serious in December, when Moonves called the chairman of CNET's board, Jarl Mohn (some of us know him best as former E! Networks chairman Lee Masters) to talk further about an acquisition.
CNET would seem to have had every motivation to get serious with CBS, given the fight it was in the middle of with institutional investor JANA Master Fund, which owned just under 15% of CNET stock and was complaining about virtually everything the company's management and board were up to and taking steps to replace them. (I'm sure all of that was a big topic of conversation between the CBS and CNET camps during the negotiations process.)
In January, Moonves made contact with Ashe (pictured right), and by the regularly skedded Jan. 30 meeting of the CBS board of directors, Moonves made the case to his directors for pursuing negotiations with CNET. By this time, JANA was making its case against CNET's management and board in Delaware Chancery Court.
By March 18, Moonves and Reynolds were back in CNET's San Francisco offices talking strategy and the logic of the deal, without getting into price, and they met more members of CNET's senior management team. Again, it seems quite amazing that not a peep leaked out in the blog-o-sphere et al. Moonves isn't exactly an anonymous corporate exec.
Finally, on April 2, Reynolds made the first move with Ashe in a telephone conversation: $10.50 a share, which repped a 40% premium over CNET's trading price (CNET's trading price has ranged during the past year from $6.77-$9.73). Ashe's response seven days later was: Thanks but the price is too low.
On April 24, the day CNET released its first quarter earnings, Moonves picked up the phone and spoke to Ashe about a deal. We all know Leslie can be very, very persuasive, but it's not entirely clear how Ashe responded that day.
On May 2, Ashe and Reynolds had a telephone call in which Ashe told Reynolds that CNET had retained Morgan Stanley to help them sort everything out (during this period CNET had an acquisition overture from another company and an offer from a private investment firm to buy a minority stake in the company).
Reynolds told Ashe that CBS might be willing to move a little higher than $10.50, and oh by the way, we've been acquiring CNET shares on the open market.
On May 5, CBS sent Morgan Stanley and offer letter that set a price of $10.75 and a $75 million breakup fee payable by CNET to CBS. No way, Morgan Stanley responded the same day. The share price is too low and the breakup fee is way high.
From here, the narrative in the filing detours in the arcana of negotiating the specifics of the termination agreement, proposals for which ranged from a "standstill" exclusive negotiating period to a "go shop" (Bergdorf Goodman?) to a "no shop" (99 Cents Store?) pact. (It's all very confusing but in the end CBS wound up with a no-shop breakup fee agreement of around $35 million, or less than 2% of the equity value of CNET.)
By May 10, CBS' offer was up to $11.25. By May 11, it climbed to $11.50, which repped a 45% premium over the roughly $9.75 trading price of CNET shares in the days prior to the announcement. (As of close of biz today, CNET shares had zoomed to $11.42. CBS shares have lost about $1.50 since the announcement, closing Friday at $22.70.)
Finally, during the hectic week of the upfronts, it was down to the last details and securing employment agreements with Ashe and Lurie, which CBS said from the start was crucial to completing a deal. (That's a big vote of confidence in Ashe from Moonves.) And in what must've felt like a bit of sweet revenge to Ashe and the CNET board, on May 18 the Delaware Supreme Court upheld the lower court's ruling that JANA had a right to proceed with its proposal to nominate new members to CNET's board of directors ... an entity that will soon be consigned to history if the CBS transaction is concluded. If all goes smoothly (i.e. no bidding skirmishes with other Johnny-come-lately suitors for CNET), CBS expects deal to close in the third quarter.
Ashe will make out well in the deal, should it go through. He's set to cash out CNET stock options worth about $7 million, plus receive a payment of at least $500,000. As a CBS employee, he'll draw down an $750,000 annual salary, plus a bonus, plus he'll get CBS stock options valued at $1.62 million 10 days after the merger closes.
If I'm reading the filing right, Mohn ought to see about $432,000 from his options. He's been a board member of CNET since 2003 and chairman since the fall of '06.
The Wall Streeters won't do too badly either, even if the fees aren't blockbuster level. Morgan Stanley stands to make about $14.5 million if the deal goes all the way to the finish line. Allen & Co. ought to see $2.8 million.